Abstract
We adopt a Cointegrated Vector-Autoregressive (CVAR) model to analyze the long-run behavior and short-run dynamics of stock markets across five developed and three emerging economies. Our main aim is to check whether liquidity conditions play an important role for stock market developments. As an innovation, liquidity conditions enter the analysis from three angles: in the form of a broad monetary aggregate, the interbank overnight rate and net capital flows which represent the share of global liquidity that arrives in the respective country. A second objective is to understand whether central banks are able to influence the stock market.
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